New Nuclear Power Plants. Procurement Issues

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1 New Nuclear Power Plants Procurement Issues

2 Introduction Role and experience of CC Construction Group 2

3 Overview Risk allocation norms in thermal power sector well established But only partly applicable to NPPs New norms to be developed which recognise: Technology factors The regulatory environment e.g. permitting and public liability Size and duration of NPPs Funding sources and perspectives Global supply and demand hardware and people Early NPPs of limited use as precedents as market evolves from prototype to proven NN technologies Developers also have different procurement philosophies there is no automatic EPC paradigm So this is a discussion rather than a lecture 3

4 Procurement Structure EPC vs EPCM Terms have different meaning in NPP context Full EPC risk allocation unlikely to be feasible anyway Owner will want substantial subcontract involvement, even in EPC structures (e.g. CI supplier selection) Each EPCM trade contract is a substantial EPC and the EPCMC may have wider role So differences in outcome may be less pronounced and drivers are more conceptual 4

5 Procurement Structure (cont.) Analysis may be distorted by lack of reliable database there is one well known problematic EPC experience The procurement process also plays a role need for early engagement may favour EPCM 5

6 Key Issues Procurement Process If regulated, use of the negotiated or CD procedure likely to be essential How does the owner balance the needs for early bidder engagement and competitive tension, especially in an EPC structure? Bid bonds HOTs or two-stage contracts Allocation of process costs Competition among key vendors, e.g. major CI components Alliancing concepts multi or single project Reputation The tables may be turned for bottleneck items example of reservation agreements in thermal projects 6

7 Key Issues - Pricing EPC usually linked to lump sum pricing but: there will be more exceptions in NPP context, e.g. site and consent conditions Some element of target cost or GMP often required / useful, for timing / design definition reasons and perhaps to promote alignment Market forces will again play a role, e.g. indexation for material cost and FX risk 7

site and consent conditions Some element of target cost or GMP often required / useful,

8 Key Issues Time and Duration EOT rights likely to be wider than typical IPP EPC, e.g.: Site conditions Changes in laws and consents Extended duration of construction also brings its own issues Insurance uninsurable events and renewal risk Bond and guarantee issuer downgrade triggers Change of control / credit profile of parties Change of law Some owner payment risk protection may be appropriate 8

: Site conditions Changes in laws and consents Extended duration of construction also brings its

9 Key Issues Scope and Quality NI, CI and BOP Auxiliaries for future units Option plants Fuel supply Same contract Separate, and if so cross defaulted? Defects RCA and re-testing 9

10 Key Issues Liability for Death, Injury and Damage Convention based system of capping and channelling well known But leaves some risk allocation decisions for parties Gaps in regulated liabilities, e.g. environmental damage and economic loss Convention liabilities can (in theory) be reallocated by contract Claims from non-convention jurisdictions Claims for damage to party's other property (e.g. adjacent units) Insurance plays a crucial role obtain early and "best in class" advice 10

11 Key Issues Contractual Liability Rejection rights? Global caps Market capacity Supply and demand Examples from other sectors Realistic expectation and analysis LD sub-caps Clear conventions needed as to performance guarantees Same commercial issues affect sub-cap amount 11

sectors Realistic expectation and analysis LD sub-caps Clear

12 Key Issues Performance Security Bonds Subject matter performance, advance payment and warranty Size sculpting Market capacity rated issuers and obligor balance sheet Type on demand or hybrid? Joint and several liability Variable shares? Other Cash retention? 12

issuers and obligor balance sheet Type on demand or hybrid?

13 Project and Relationship Management Alliancing and upside sharing Early warning 13

14 Contacts Tracy London, Partner, London Direct dial: +44 (0) David Metzger, Partner, London Direct dial: +44 (0) Tim Steadman, Partner, London Direct dial: +44 (0)

com David Metzger, Partner, London Direct dial: +44 (0)20 7006 4240 E-mail:

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16 New Nuclear Power Plants Procurement Issues Clifford Chance, 10 Upper Bank Street, London, E14 5JJ Clifford Chance LLP 2009 Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC Registered office: 10 Upper Bank Street, London, E14 5JJ We use the word 'partner' to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications UK v1

number OC323571 Registered office: 10 Upper Bank Street, London, E14 5JJ We use the word 'partner' to refer to

Accessing DC savings: The new rules. www.allenovery.com

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